Buying a Coinbase (COIN) stock to gain indirect exposure to the Bitcoin (BTC) market has been a poor strategy so far compared to simply holding BTC.
In particular, COIN is down almost 50% to almost $186, if measured from the opening rate at its IPO on April 14, 2021. By comparison, Bitcoin outperformed shares of Coinbase by posting fewer losses over the same period – just over 30%, as it fell from nearly $65,000 to around $41,700.
What is affecting Coinbase?
However, the correlation between Coinbase and Bitcoin has been largely positive to date, suggesting that many investors view them as assets with similar value propositions. This is mainly due to the buzz about how COIN could become an easier onboarding experience for investors in the cryptocurrency sector compared to buying Bitcoin, Ether (ETH), and other digital assets.
However, the product COIN is facing increasing competition with the arrival of cryptocurrency-based exchange-traded products (ETPs), mining stocks, and similar companies listed on Wall Street indices. This may have reduced its demand as a reference asset to gain exposure to cryptocurrencies.
What’s more, COIN faces downside risks due to its downbeat forecasts for FY22. Coinbase stated in its latest earnings report that cryptocurrency volatility could turn 2022 into an unprofitable year, noting that its adjusted EBITDA losses could become around 500 million dollars if your monthly transaction users are at the low end of your target range.
Jere Ong, principal analyst and founder of JR Research, noted that 96% of Coinbase’s total revenue in Q4 2021 came from fees charged on retail transactions, highlighting the “inherent weakness” of its business model. Extracts from his report:
“We believe it offers a short-term buying opportunity for speculative investors. But we do not encourage investors to hold COIN shares long-term unless they have very high conviction of its execution.
The risks of Bitcoin are totally different
Bitcoin is a different beast when compared to the stock of a centralized company like Coinbase.
Absolute scarcity, censorship-resistant decentralized ledger, and gold-like properties as a potential hedge against inflation in the digital age are just some of the concepts driving the price of BTC today.
With 7.5% inflation and real inflation numbers at 19.5% (shadowstats) the fed is doing a great job! Just 100x more, and they will be at Paul Volcker’s level of 30% interest rates!!! Got #bitcoin? pic.twitter.com/qesZ2iU0Mv
— Davinci Jeremie (@Davincij15) March 17, 2022
With inflation running at 7.5% and actual inflation figures at 19.5% the Fed is doing a great job! Just 100x more and they will be at the Paul Volcker level of 30% interest rates!!! Do you have Bitcoin?
As a result, analysts and strategists are predicting that Bitcoin will go anywhere from zero to “millions” per 1 BTC, depending on who you ask.
On the other hand, most stocks with exposure to cryptocurrencies have also suffered more compared to Bitcoin. Namely, Nasdaq-listed mining companies Canaan, whose share value fell nearly 80% year-over-year, and Riot Blockchain, which dropped 67.55% in the same period.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
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